As Christmas approaches, will interest rates move?
We’re now moving forward into the final trading week pre-Christmas and with that said, its going to be a hectic one. As we look forward to the rest of this week, the FED and the BoE’s interest rate decision’s are fast approaching with the FED’s meeting taking place on the 18th and the BoE on the 19th.
With the market factoring a third consecutive rate cut of 0.25% tomorrow for the FED, eyes will be on Jerome Powell as to whether he lays out plans of further cuts as we move into 2025. The market has currently factored in 4 rate cuts in 2025, however, if Powell announces any changes to the current expectations of larger or more cuts next year, we could potentially see a weaker USD as we see a bigger shift of investment into other assets.
Alongside the FED’s rate cut, the BoE are in action the following day and Andrew Bailey will be announcing their plans. As of today, the market hasn’t factored in any movement to the UK’s interest rate as inflation seems to be rising. The UK posted an inflation rate of 2.3% in October and the forecast is that the inflation may rise to 2.7% for the month of November. One of the key reasons for inflation rising is due to UK wages rising unexpectedly in October, with regular pay increasing by 5.2%, surpassing forecasts. This wage growth indicates increasing inflationary pressures, as businesses may raise prices to offset higher labour costs. Consequently, the market now anticipates fewer interest rate cuts by the Bank of England in 2025. As a result, if Andrew Bailey hints towards keeping the UK’s interest rate at 4.75% for the foreseeable, the GBP potentially may gain more value as it continues to have the highest interest rate in the G7.
